RBA sees ‘favourable’ situation for the major banks

Cheaper funding and recent rate hikes are increasing the “implied spread” of the big four, according to the Reserve Bank of Australia, with funding costs tipped to fall even further.

The RBA’s Statement on Monetary Policy, published 4 August, outlined that the cost of the major banks’ outstanding deposit and wholesale debt funding is “estimated to have declined” over the year so far.

“Interest rates on term deposits and savings accounts have declined, and the average cost of term deposits is expected to decline a little further, reflecting the maturity of deposits that were entered into at higher interest rates last year,” the RBA said.

“Conditions in wholesale debt markets remain favourable for banks, with the cost of issuing new long-term debt at historically low levels and the cost of short-term wholesale debt declining in recent months.”

The RBA noted that the “implied spread” between lending rates and debt funding costs for the major banks is estimated to have increased over the past year.

“Most of this increase was a result of higher interest rates on investor and interest-only lending. Lower funding costs have also contributed to the increase in the implied spread.”

The statement comes after a number of major banks have repeatedly blamed rate hikes on increased funding costs and regulatory measures, while additional capital requirements have also been cited as a reason for repricing home loans.

The banks have faced industry scrutiny for their decision to move rates up, particularly as the central bank left the official cash rate on hold for the 12th consecutive month last week.

Former NAB executive Steve Weston has said that lifting rates for existing interest-only borrowers has little to do with the regulatory pressures the banks claim they are under.

“The back book didn’t need to be touched,” Mr Weston said.

“At the very least, the banks could have waited until the interest-only loan period expired before increasing rates. They could have written to customers and advised them about the benefits of commencing principle repayments and letting them know that their interest rate would increase at the end of their interest-only term if they didn’t commence making principle repayments at that time.

“These don’t feel like the actions of banks who want to build trust with customers. To me it feels more like taking an opportunity to increase profits. Actually, it feels very un-Australian," Mr Weston said.